TATA MOTORS LTD,MUMBAI vs. ASST CIT (LTU), MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

As these are cross appeals, they are taken up together and disposed of by this common order for the sake of convenience.

“2. As requested by your above referred letter, following are the reasons for re-opening the assessment for A.Y. 2002-03- "The assessee company is engaged in the business of Hire Purchase, Leasing, Bill Discounting and Generation of Power. It is also engaged in the number of finance related activities. The return of income for AY.2002-03 declaring total loss of Rs.14,72,82,350/- was filed on 30.10.2002. The return of income was processed u/s 143(1) of the Act on 13.01.2003 resulting in the refund of Rs.15,93,18,614/- However, it is revealed while going through the case records for A.Y.02-03 of the assessee company the following issues are skewed against the I.T.Department:

1. 1. Interest income of Non Performing Assets/Doubtful assets have been recognized on the receipt of the interest rather than Mercantile System of Accounting followed by the assessee company.

2. Late payment of compensation in case of Lease, Hire Purchase Contract for commercial vehicle & bill discounting has been accounted for on receipts basis though the assessee company followed Mercantile System of Accounting.

3. Subvention income received from the dealers is pro-rated over the tenure of facility w.e.f. 1 July 2001 resulting in the higher claim of loss to the tune of Rs.2.57 crores.

4. The assessee company has not complied with the prudential norms prescribed in the Non-Banking Financial Companies' Prudential Norms (Reserve Bank) Directions, 1998.

5. Cumulative provisions of Rs.291.20 crores has been made by the assessee company vis-à-vis Loans and Advances granted to Niskalp Investment & Trading Co. Ltd.

6. The assessee company has not recognized interest receivable from Niskalp Investments & Trading Co. Ltd. on outstanding ICDs of Rs.4842.44 lacs.

7. Loss arising from transfer and cancellation of contract claimed as miscellaneous expenditure to the tune of Rs.152 lacs, which is prima-facie capital in nature.

7359/Mum/2013 M/s. Tata Motors Ltd

8. Excess Managerial Remuneration is claimed at Rs.13.12 lacs.

7359/Mum/2013 M/s. Tata Motors Ltd

3.1. The assessee vide letter dated 19/09/2005 filed its objections to assumption of jurisdiction u/s.148 of the Act and also for the reasons recorded thereon, before the ld. AO. This letter is enclosed in pages 46- 53 of the paper book. The ld. AO vide letter dated 20/12/2005 disposed of the objections filed by the assessee by separate letter justifying the reopening. Thereafter, the assessee started furnishing the details that were called for by the ld. AO from time to time, on various issues on merits. The re-assessment was completed u/s.143(3) r.w.s. 147 of the Act dated 13/03/2006 determining total income of Rs.9,69,61,530/-, after making various disallowances. The assessee challenged the validity of re- assessment before the ld. CIT(A) also by submitting that the ld. AO did not have any tangible material with him which would enable him to form a belief that income of the assessee had escaped assessment. This is evident from the fact that the reasons recorded as communicated to the assessee clearly reveals that the ld. AO had merely verified the very same record that are already available with him. It was submitted that the reasons recorded only enable the ld. AO to make fishing and roving enquiries which is not permissible u/s.147 of the Act. The ld. CIT(A) dismissed the plea of the assessee and confirmed the reopening of assessment made u/s.147 of the Act. However, in respect of various disallowances made on merits, the ld. CIT(A) granted partial relief to the assessee. Aggrieved by the order of the ld. CIT(A), both the assessee as well as the Revenue are in appeal before us.

7359/Mum/2013 M/s. Tata Motors Ltd 3.2. We find from the perusal of the reasons as communicated to the assessee which are reproduced hereinabove, the following points clearly emerge:- a) The reasons as communicated to the assessee merely state the list of items that are skewed against the Income Tax department. The ld. AO does not even mention that because of these issues, the income of the assessee had escaped assessment. b) The reasons as communicated to the assessee which are reproduced hereinabove does not even say that the ld. AO had a reason to believe that income of the assessee had escaped assessment. c) The reasons only contemplate the ld. AO to make fishing an roving enquiry.

3.3. Admittedly, when this was put to the ld. DR, the ld. DR sought time and furnished the full extract of the reasons recorded for reopening the assessment before this Bench. The full extract of the reasons recorded by the ld. AO as furnished by the ld. DR before us contain the last para wherein the ld. AO had recorded that he had reason to believe that income of the assessee had escaped assessment warranting reopening u/s.147 of the Act.

3.4. From the above, it could be safely concluded that the full extract of the reasons recorded for reopening their assessment was not furnished by the ld. AO to the assessee upto the stage of completion of first appellate proceedings and that the same was furnished for the first time only before the second appellate proceedings before us. Now, the legal issue arises as to whether the reopening of assessment would be justified

7359/Mum/2013 M/s. Tata Motors Ltd when partial extract of the reasons were furnished to the assessee and that whether partial furnishing of the reasons would be equivalent to non- furnishing of the reasons to the assessee. We find that this issue has been addressed by the Co-ordinate Bench decision of this Tribunal in the case of ACIT vs. Bharti Axa Life Insurance Co. Ltd reported in 189 ITD 450. The relevant operative portion of the said order is reproduced hereunder:-

“4.7 The ld DR at the time of hearing before us vide letter dated 6-1-2021 furnished the copy of complete reasons recorded for reopening the assessment together with the prescribed proforma in which approval in terms of section 151 of the Act was obtained from the superior officers. The full text of the reasons recorded for reopening the assessment and the statutory proforma for obtaining approval in terms of section 151 of the Act are reproduced hereunder for the sake of convenience :—

7359/Mum/2013 M/s. Tata Motors Ltd was e-filed on 31-10-2007 declaring total loss at Rs. 80,42,56,839/-. The assessment u/s 143(3)/144C (3) was passed on 30.12,2010 at loss of Rs. 73,28,08,306/-.

2. On verification of records it is noticed that the assessee has declared loss of Rs. 80,42,56,839 in the return of income and carried it forward to set it off against profits for subsequent years. The assessee, being a life insurance company has claimed that its income has been computed as per section 44 read with First schedule to the I.T. Act, 1961. In the assessment order, the profits and gains from insurance business as declared by the assessee have been accepted subject to an addition of Rs. 7,14,48,533/- made in accordance with the order of the TPO.

3. In this connection, it is necessary to reproduce provisions of sections 44 and Rule 2 of the First Schedule as follows: Not withstanding anything to the contrary contained in the provisions of this Act . . . shall be computed in accordance with the rules contained in the First Schedule. Thus, the profits and gains of the insurance have to be determined in accordance with the surplus disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938 in respect of the last inter-valuation period ending before the commencement of the assessment year. The assessee has in fact, not followed the above cited provision, it has simply picked up the figure of loss from its profit and loss account for the year ended March 31, 2007 which is also termed as the shareholders' Account (Nontechnical account). The loss has been arrived at as....,it can be seen that the loss has arisen only on account of transfer of funds from the shareholders account to the policyholders account has been shown by the assessee as its loss from the insurance business, which is against the provisions of section 44 read with Rule 2 of first schedule. In view of the above, treatment of a mere transfer of funds from the shareholders' account as loss eligible to be carried forward was not correct. As the amount of surplus as per actuarial valuation is not available on record, the exact underassessment of income and tax effect cannot be determined. However same will be not less than Rs. One lakh.

5. The relevant assessment year being A.Y. 2007-08, the period of re-opening is within 6 years. Hence, approval & satisfaction of the Commissioner of Income-tax is sought for re-opening the case as per provisions of section 151(1) of the IT. Act.

7359/Mum/2013 M/s. Tata Motors Ltd

4.9. From the perusal of the reasons recorded for reopening the assessment, as furnished to the assessee, it is a fact that the said reasons communicated to the assessee were incomplete and no where in the reasons recorded, the failure on the part of the assessee to furnish full and true information necessary for the purpose of assessment was mentioned. When this was put to ld DR, he argued that the full text of the reasons recorded would be available in the assessment folder and that whatever is relevant to be given to the assessee had been duly furnished by the ld AO. We find that the ld DR had duly furnished the full text of the reasons recorded for reopening the assessment which was also duly placed before the competent authority while seeking approval in terms of section 151 of the Act. In the said full text of reasons, omission on the part of the assessee was mentioned as a general and vague statement without specifically pointing out as to what was the clear omission or failure on the part of the assessee in not furnishing the requisite information that was necessary for the assessment. Infact the reasons recorded starts with "On verification of records …… ". This statement itself very clearly proves that the entire information was very much available with the ld AO in the records which alone enabled him on bare perusal, to come to a conclusion that income of the assessee had escaped assessment. Hence in this scenario, how failure or omission could be attributed on the part of the assessee. Once there is no failure on the part of the assessee in providing requisite information, then the basic premise on which the entire reassessment was framed by recording reasons, vanishes in thin air. This makes the entire reassessment proceedings void ab initio. Moreover, we also find that the ld AO had triggered the reopening only based on verification of records. This goes to prove beyond doubt that there was absolutely no tangible material available with the ld AO to form a belief that income of the assessee had escaped assessment. On this count also, the reopening of the assessment deserves to be declared as bad in law. 4.9.1 We find that the assessee upto the completion of reassessment and first appellate proceedings thereon was supplied only with the extract of reasons recorded which was admittedly incomplete as narrated above. Even the said extract of reasons recorded were supplied to the assessee without furnishing the sanction obtained in terms of section 151 of the Act, though it was specifically sought for in writing by the assessee. In this regard, we find that the ld AR rightly placed reliance on the decision of Hon'ble Jurisdictional High Court in the case of Shodiman Investments (P.) Ltd (supra), wherein it was held as under:— 9. We find that at the time of re-opening of the Assessment, the Assessing Officer did not provide the reasons recorded in support of the re-opening notice in its entirety, to the Respondent-Assessee. This was contrary to and in defiance of the decision of the Apex Court in GKN Driveshafts v. ITO [2002] 125 Taxman 963/[2003] 259 ITR 19. The entire objects of reasons for re- opening notice as recorded being made available to an Assessee, is to enable the Assessing Officer to have a second look at his reasons recorded before he proceeds to assess the income, which according to him, has escaped Assessment. In fact, non furnishing of reasons would make an Assessment Order bad as held by this Court in CIT v. Videsh Sanchar Nigam Ltd. [2012] 21 taxmann.com 53/340 ITR 66. In fact, partial furnishing of reasons will also 7359/Mum/2013 M/s. Tata Motors Ltd necessarily meet the same fate i.e. render the Assessment Order on re- opening notice bad. Therefore, on the above ground itself, the question as proposed does not give rise to any substantial question of law as it is covered by the decision of this Court in Videsh Sanchar Nigam Ltd.'s. case (supra) against the Revenue in the present facts.

7359/Mum/2013 M/s. Tata Motors Ltd belief that income chargeable to tax has escaped assessment. This material which forms the basis, is not restricted, but the material must lead to the formation of reason to believe that income chargeable to tax has escaped Assessment. Mere obtaining of material by itself does not result in reason to believe that income has escaped assessment. In fact, this would be evident from the fact that in para 16 of the decision in Rajesh Jhaveri Stock Brokers (P.) Ltd.'s., case (supra), it is observed that the word 'reason' in the …. 'reason to believe' would mean cause or justification. Therefore, it can only be the basis of forming the belief However, the belief must be independently formed in the context of the material obtained that there is an escapement of income. Otherwise, no meaning is being given to the words 'to believe' as found in Section 147 of the Act. Therefore, the words 'whatever reasons' in Rajesh Jhaveri Stock Brokers (P.) Ltd.'s., case (supra), only means whatever the material, the reasons recorded must indicate the reasons to believe that income has escaped assessment. This is so as reasons as recorded alone give the Assessing Officer power to re-open an assessment, if it reveals/indicate, reasons to believe that income chargeable to tax has escaped assessment.

7359/Mum/2013 M/s. Tata Motors Ltd

(EMPHASIS SUPPLIED BY US)

3.5. We find that in the aforesaid decision, the reopening in that case was made beyond four years, whereas in the instant case before us, the reopening is made within four years and hence, the applicability of proviso to Section 147 that the ld. AO should record in the reasons that there was a failure on the part of the assessee to make full and true disclosure of facts necessary for assessment would not be required in the instant case. Other than this aspect, the decision rendered by this Mumbai Tribunal in 189 ITD 450 supra would be applicable to the facts of the instant case as is evident from the para reproduced hereinabove.

3.6. Yet another legal proposition had arose in the instant case as is very much evident from the extract of the reasons furnished to the assessee is that the reopening in the instant case has been made only to make

7359/Mum/2013 M/s. Tata Motors Ltd fishing and roving enquiries by the ld. AO which is not permissible u/s.147 of the Act. Infact for each of the items mentioned in the extract of the reasons recorded, we find that assessee had already given its necessary disclosures in the financial statements and in the notes on accounts attached to those financial statements. In this regard, the ld. AR rightly placed reliance on the decision of the Hon’ble Punjab and Haryana High Court in the case of Vipan Khanna vs. CIT reported in 255 ITR 220 (P&H); the decision of the Hon’ble Gujarat High Court in the case of DCIT Vs. Manzil Dineshkumar Shah in Tax Appeal No.451 of 2018. Moreover, we find that the Hon’ble Jurisdictional High court also in the case of PCIT vs Rajesh D Nandu (HUF) reported in 101 taxmann.com 401 (Bom HC) dated 18/12/2018 had held as under:-

7.There can be no dispute that in case where a return of income has been processed under Section 143(1) of the Act, the Revenue has a greater latitude in reopening an assessment. However, even in such cases, the reopening of an assessment can only be done if there is reason to believe that income chargeable to tax has escaped assessment. The reason recorded in support of the reopening notice must disclose the basis of the reasons to believe that income chargeable to tax has escaped assessment. The reasons must provide a link between the material available and the formation of reasonable belief that income chargeable to tax has escaped assessment. The reason to believe must be based on some material available with the Assessing Officer and no reasonable belief can be formed without some material to support the same.

7359/Mum/2013 M/s. Tata Motors Ltd 3.7. In view of the aforesaid observations, we have no hesitation to hold that reopening of assessment made in the instant case deserves to be quashed on all the three reasons i.e. (i) by partially furnishing the reasons recorded which is equivalent to non-furnishing of reasons to the assessee; and (ii) Reopening made in the instant case only to make fishing and roving enquiries. Hence, we quash the entire re-assessment in the instant case.

4. Since, the reopening is quashed by us, the other grounds raised by the assessee as well as by the Revenue on merits contesting various disallowances / additions need not be gone into and no opinion is rendered herein by us on the same.